Zynga’s Earnings Are No Fun For Investors

Investors were not impressed with ZNGA's first quarter results. Here's why it's so tough for them to find growth.

It’s been a rocky ride since Zynga’s (NASDAQ:ZNGA) IPO in December 2011. The stock has seen a range of $7.97 to $15.91. And Zynga’s first-quarter report didn’t help. Investors were not impressed — so far in today’s trading, the stock is off 5.6%, to $8.89.

Zynga is the dominant player in social games for the Facebook platform. But it’s getting tougher to find growth. In Q1, sales increased 32%, to $329 million, and profits came to 6 cents a share, down from 11 cents in the same period a year ago.

The key for Zynga will be moving to mobile. But that’s far from easy. The market is still in its infancy, and monetization tends to be lower compared to desktop platforms. This explains why Pandora (NYSE:P) has had problems, as seen in its quarterly report.

But Zynga has the advantage of a cash hoard of $1.5 billion, which is already being used for dealmaking. The company recently shelled out $180 million for OMGPOP, the developer of the popular mobile game “Draw Something.”

Interestingly enough, Zynga’s performance may signal headwinds for the Facebook IPO. Investors have been unloading social stocks lately, including Groupon (NASDAQ:GRPN) and Pandora.

Based in Silicon Valley, Tom Taulli is in the heart of IPO land. On a regular basis, he talks with many of the top tech CEOs and founders trying to find the next hot deals and finding out which start-ups are stinkers.

A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.

Tom is routinely quoted in the media about upcoming deals with his interviews on CNBC and Bloomberg TV, but he is eager to take your questions too. You can message him on Twitter at @ttaulli. And feel free to weigh in via the comments section on any of his IPO Playbook posts.